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Please join us for this event as part of the Economic Department Research Seminar Series.

Presentations

'The role of energy in production' by Steve Keen (Kingston University)The stock standard Neoclassical production model is the Cobb-Douglas Production Function. As is well-known, when this equation is fitted to data, over 80% of the growth in productivity is attributed to the A term-which allegedly shows "total factor productivity". This is an undesirable state of affairs: we have an equation that is supposed to explain growth which largely resolves to putting the factors that explain growth into the "unexplained & unmeasured" box.

There is a simple way to resolve this however, by accepting that not merely is production without energy impossible, but neither labor nor capital can exist without energy: labor without energy is a corpse, and a machine without energy is a scultpture. To put them both into motion as transformers of inputs into outputs, they must harness energy. This insight leads to a simple extension of the equation in which the A term is replaced predominantly by the useful energy harnessed by machinery.

'Currency Devaluations, Aggregate Demand, and Debt Dynamics in an Economy with Foreign Currency Liabilities' by Karsten Kohler (Kingston University)The paper employs a post-Kaleckian model to address the question of how currency devaluations affect aggregate demand, capital accumulation, and external debt in an economy with foreign currency liabilities. In benchmark post-Kaleckian open economy models currency devaluations have two key effects. First, they change international price competitiveness and thus affect net exports. Second, devaluations change income distribution and thereby affect consumption and investment demand. The overall effect on aggregate demand and investment is ambiguous and depends on parameter values. Existing models, however, disregard balance sheet effects that arise from foreign currency-denominated external debt. The paper develops a novel post-Kaleckian open economy model that introduces foreign currency-denominated external debt and balance sheet effects. The model is then used to analyse the effects of a currency devaluation on aggregate demand, growth, and external debt dynamics in small open economies with a fixed exchange rate in the short- to medium-run. The main findings are that the existence of foreign currency-denominated debt means that devaluations are more likely to take a contractionary form, and that foreign interest rate hikes, and high illiquidity and risk premia compromise debt sustainability. Devaluations only stabilise debt ratios if they succeed in boosting domestic capital accumulation.

Speakers

Dr. Keen is Professor of Economics at Kingston University, London, and the author of Debunking Economics (2011) and Can We Avoid Another Financial Crisis? (2017). He was one of a handful of economists to anticipate the Global Financial Crisis of 2008, and won the Revere Award from the Real World Economics Review for being the economist who "gave public warning of the Global Financial Collapse and whose work is most likely to prevent another GFC in the future."

His main research interest is complex system models of financial instability. He has over 70 refereed publications on money creation, empirical analysis of credit dynamics, mathematical flaws in conventional economic theory. He designed the Open Source system dynamics program Minsky, which extended the system dynamics paradigm by enabling financial flow equations to be derived from double entry bookkeeping tables.